OREANDA-NEWS. Fitch Ratings has assigned Gosforth 2016-1 plc's notes the following final ratings:

Class A1a: 'AAAsf', Outlook Stable
Class A1b: 'AAAsf', Outlook Stable
Class A2a: 'AAAsf', Outlook Stable
Class A2b: 'AAAsf', Outlook Stable
Class M: 'AA+sf', Outlook Stable
Class Z: not rated

This transaction is a securitisation of prime residential owner-occupied mortgages originated by Virgin Money plc (VM) and NRAM plc in England, Wales and Scotland. It is the sixth issuance from the Gosforth series since 2011. VM will service the loans and Homeloan Management Limited will be named as back-up administrator.

The ratings reflect the credit enhancement available for each class of rated notes. Credit enhancement for the class A notes is 11.9%, provided by the subordination of the class M notes (4%), the unrated class Z notes (6%), a reserve fund (1.9%), and excess spread.

KEY RATING DRIVERS
Portfolio of Prime Mortgages
The portfolio has a weighted average (WA) seasoning of 23 months, a WA sustainable loan-to-value ratio (sLTV) of 76.6% and WA debt to income (DTI) of 42.8%. The WA sLTV and WA DTI are below the average for UK prime transactions rated by Fitch.

Revolving Transaction
A five-year revolving period allows new assets to be added to the portfolio. Fitch considers that the replenishment criteria help mitigate any significant concerns arising from the potential downward migration of the portfolio's credit profile. Nonetheless, Fitch has assumed changes to the portfolio characteristics in line with the replenishment criteria listed in the transaction documentation.

Basis Risk Hedged
The basis risk is hedged through a swap provided by VM, with Natixis, London Branch, acting as standby swap provider. A failure to pay or an insolvency of the initial basis swap provider will result in the standby swap replacing the initial basis swap for the fixed and BBR-linked loans only.

Class A Scheduled Amortisation
Principal for the class A notes is paid in the first instance according to a target scheduled amortisation. The class A2 notes will begin amortising after the class A1 notes have been paid down in full. Any excess principal collections are paid to the seller. The issuer will be allocated the lower of principal amounts due to noteholders and all trustee available principal receipts. In the event the principal collections are not enough to meet the target scheduled amortisation then the amounts due will be carried forward.
Non 'A'/'F1' Counterparties
Two account bank providers, Lloyds (A+/Stable/F1; acting as collection account bank) and Virgin Money (BBB+/Positive/F2; acting as VM issuer account bank and VM Mortgages trustee account bank) do not have direct support counterparty replacement triggers stated in the transaction documentation. Fitch has assumed a total loss equal to the maximum amount permitted to be held in the VM issuer account plus one month worth of scheduled principal and interest to account for funds lost due to insolvency of either of these banks.

RATING SENSITIVITIES
Material increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels larger than Fitch's base case expectations, which in turn may result in negative rating actions on the notes. Fitch's analysis revealed that a 30% increase in the WA foreclosure frequency along with a 30% decrease in the WA recovery rate would result in a model-implied downgrade of the class A notes to 'AAsf'.

More detailed model implied ratings sensitivity can be found in the presale report which is available at www.fitchratings.com.

The mortgages in this pool were either originated by VM after 2010 or by NRAM before being transferred to VM in January 2010. VM was unable to provide performance data for NRAM-originated loans before the transfer but provided three-months-plus arrears information by vintage on the assets from the date of transfer, and performance data covering VM-originated assets.

The performance of NRAM-originated loans from previous Gosforth transactions has been in line with comparable prime UK transactions rated by Fitch and provides sufficient comfort for the lack of performance data. VM confirmed that all NRAM-originated loans within the portfolio were at least six months-seasoned and performing in the 12 months prior to the transfer to VM; hence no adjustment was applied.

Data was provided on all loans with respect to county court judgments and bankruptcy orders/individual voluntary arrangements; however, VM was unable to provide confirmation regarding borrowers that may have had prior mortgage arrears.

VM provided repossession data on 247 cases, of which 225 had sufficient data to calculate a quick sale adjustment of 21.1% for houses and bungalows and 31.5% for flats. This is higher than the UK criteria of 17% for houses and bungalows and 25% for flats built into Fitch's market value decline (MVD) assumptions for UK RMBS transactions. Fitch applies the higher of the lender's QSA and the standard QSA assumptions under Fitch's criteria and therefore the QSA figures calculated from the data provided by VM were applied.

The rating triggers for the Citibank issuer account, and the Citibank and BNP Paribas mortgage trustee accounts, qualified investments, and derivative counterparties in the transaction documents have specific reference to Fitch criteria, which creates uncertainty regarding future counterparty arrangements.

Fitch visited VM's head office on 26 November 2015, and there were no material changes in their origination process and lending policies since the previous visit in November 2014. Fitch carried out a file review during an operational review at VM's offices to check for the accuracy of the data provided in a previous portfolio and found no material issues.

Review visits do not constitute due diligence. Fitch does not perform due diligence but relies upon the accuracy of data given to it.

Fitch has reviewed the results of an agreed upon procedures report carried out by an external auditor and no material issues were raised.

It is Fitch's opinion that the data available for the analysis is of good quality.

To analyse the credit enhancement levels, Fitch evaluated the collateral using its default model ResiEMEA. The agency assessed the transaction cash flows using default and loss severity assumptions under various structural stresses including prepayment speeds and interest rate scenarios. The cash flow tests showed that each class of notes could withstand loan losses at a level corresponding to the related stress scenario without incurring any principal loss or interest shortfall and can retire principal by the legal final maturity.

SOURCES OF INFORMATION
The information below was used in the analysis.
- Loan-by-loan data provided by Virgin Money as at 31 December 2015
- Loan enforcement details provided by Virgin Money as at 13 November 2015
- Loan performance data provided by Virgin Money as at 13 November 2015